Acquisition of the Tugalgatai licenses represents an expansion of the Prophecy’s Chandgana project which hosts a thermal coal resource of 650 million tonnes (measured) and 540Mt (indicated).

Prophecy notes that although Tethys estimated a thermal coal resource at Tugalgatai of 2.33 billion tonnes, the figures were not NI 43-101 compliant.

The Canadian miner said it expects to conduct work “in due course” to prepare a NI 43-1-1 resource for the new tenements.

Prophecy chairman and chief executive John Lee said the transaction was expected to close in the third quarter of 2012.

“By consolidating the Chandgana coal basin of approximately 300sq.km, Prophecy is looking for greater economies of scale to potentially produce low-cost electricity at the Chandgana mine mouth power plant, and further develop coal to chemicals and coal gasification projects,” he said.

“It’s also possible to further increase the resource through exploration in this highly prospective basin.”

The agreement still subject to approval from the country’s Mineral Resource Authority includes a $US10 million upfront payment and an 8.5% royalty on future coal sales from Chandgana and Tugalgatai licenses.

The royalty may be extinguished by paying Tethys $20M before 2021 or $25M from 2021 onwards.

Of the purchase price, $2M will be immediately deposited in escrow. The total payment will be paid to Tethys upon the transfer of the licenses.

Prophecy Coal has more than 1.4Bt of surface mineable thermal coal resources on two coal properties in Mongolia.